The Morning Ledger: Currency Swings Cost Companies Money

The Morning Ledger from CFO Journal cues up the most important news in corporate finance every weekday morning. Send us tips, suggestions and complaints: david.hall@wsj.com. Get The Morning Ledger emailed to you each weekday morning by clicking here. Follow us on Twitter @CFOJournal.

Some companies have taken steps to try to protect themselves. After an earnings hit from foreign exchange in the second quarter, Thermo Fisher Scientific said it was adding $10 million to its restructuring actions to offset such impacts. But despite hedging efforts, many companies still face a higher level of currency volatility than they’re used to, Mr. Koester said.

Fitch Ratings said in a note to clients this week that companies should expect more foreign-exchange volatility as Brazil, Russia, India and China experience growth strains. Even if companies are spending local currency to fund operations in those countries, they still face risks from the need to import special components and raw materials. “A depreciating currency can significantly raise input costs, forcing manufacturers to offset margin pressure,” the Fitch analysts wrote in the note.

Billtrust CFO hints at IPO. If history repeats itself for Billtrust‘s new chief financial officer, Ed Jordan, success on the job may mean that he gets himself fired, writes Maxwell Murphy. Billtrust, a provider of outsourced billing and payments systems, said yesterday that it rounded it out its finance team by naming Mr. Jordan as CFO and Kirk Dauksavage as chief revenue officer. Mr. Jordan told CFO Journal that his background of 30 years is working at venture-capital-backed companies, seeing them through their initial public offerings and ultimately selling them to large, established companies that already have their own trusted CFOs. “Every time they get sold, I get shot in the head,” he quipped. Prior employers, for example, were sold to industry giants like Qualcomm and Intel, he said. The company is profitable, he said, and ready to move into its next stage beyond venture funding. Mr. Jordan said he anticipates any future funding needs will come from private equity or in the public markets.

CORPORATE NEWS:

Tech glitch sinks Goldman’s Treasury order. A glitch at the U.S. Treasury’s bidding system last week blocked Goldman Sachs‘s multibillion-dollar order for three-month Treasury bills, altering prices in the U.S. debt market, the Journal’s Carolyn Cui reports. The Treasury Department on Sept. 9 sold $30 billion of bills that mature in three months. Goldman was left out when its order didn’t go through the computers at the Federal Reserve Bank of New York, which conducts debt auctions for the Treasury. When Treasury officials noticed the botched order, they manually allotted Goldman more T-bills that mature in six months than the bank had asked for in a simultaneous auction. A string of technical hiccups in U.S. financial markets has raised anxieties among investors about losing money because of balky computers.

How SAP lowers its tax bill.Reuters’s Tom Bergin takes a deep dive into how SAP trims its tax bill. SAP, which has its headquarters in Walldorf, Germany, has paid a global annual tax rate in the past three years averaging 26%—nearly 20 percentage points lower than the rate a decade earlier. Like other German companies, SAP has benefited from significant German tax cuts over that time, but it is taxed on only part of its profits in Germany. The company is structured so that Ireland, which accounts for less than 1% of its sales and employees, is the home base for 20% of its profits. There is nothing illegal about this. Like all companies, SAP has a responsibility to investors to maximize returns by minimizing costs, including taxes. But corporate tax is an increasingly touchy topic as indebted governments cut budgets, Bergin notes.

Electrolux spiffs up appliances in China.Electrolux is revamping its China strategy and preparing to reintroduce itself as a premium brand. “We had a flawed model” in China, CEO Keith McLoughlin, told the WSJ’s James R. Hagerty in an interview. The plan was to “build factories to make cheap white boxes better than the Chinese.” The result was merchandise that didn’t strike consumers as special. Making things worse, Electrolux’s production costs were far higher than its Chinese rivals’. “They had scale,” Mr. McLoughlin said. “We were starting up from scratch. We’re making 10; they’re making a million.”

Cooper Tire deal faces potential roadblocks.Cooper Tire & Rubber‘s sale to Apollo Tyres—one of the biggest Indian takeovers of a U.S. company—is in danger of deflating as workers at its U.S. and Chinese factories have raised hurdles that threatened the deal, the WSJ reports. Cooper Tire said it is “assessing its options” after a U.S. arbitrator barred the sale or transfer of two of its three U.S. tire plants without a new labor contract for workers. A spokeswoman said the tire maker continues to talk with the United Steelworkers union about its complaint.

Joy Covey, Amazon’s first CFO, steered an emerging giant’s growth. Joy Covey, Amazon’s first CFO, passed away yesterday at age 50 in a tragic bicycle accident in California. Today’s startups have the lessons of past Web giants when modeling their future, but Ms. Covey was in the Amazon cockpit when the Internet was young and no one had ever seen such torrid growth, Bloomberg’s Brad Stone writes. “People don’t have any clue about what’s it like to grow that quickly in a world where no track has been laid,” she said. “In the early days of Amazon.com—when most investors dubbed the Internet upstart ‘Amazon.bomb’ owing to their perception of a flawed business model—we [Morgan Stanley] helped CFO Joy Covey raise more than $500 million for the company,” says Mary Meeker, a venture capitalist and former Morgan Stanley analyst who was friends with Ms. Covey. “Joy did this nearly singlehandedly for the company in a matter of days, not the more standard weeks. It was an unprecedented deal at the time.”

ECONOMY:

Fed’s guidance questioned. Fed officials created new uncertainty about how much farther they will push their easy-money policies with the decision to stand pat on the pace of their bond purchases for now, writes the WSJ’s Jon Hilsenrath. Investors and analysts said the Fed’s action was the latest in a series of communications missteps, demonstrated by the fact that numerous surveys showed investors broadly expected the central bank to move in September.

Companies dive into bond market. Companies took advantage of the Fed’s decision, selling at least $7 billion of bonds Thursday. Both high-grade and junk-rated firms jumped into the market, the WSJ’s Mike Cherney reports. Cummins, which carries single-A ratings, is selling $1 billion of bonds, its first bond deal since 2002. Junk-rated Sirius XM Radio, which has tapped the bond market multiple times this year, was selling $600 million on Thursday, aimed at refinancing existing debt. Analysts said bond markets could be in for three months of smooth sailing. They said it’s unlikely the Fed will taper its purchases after the next FOMC meeting in October, given that there won’t be much time before then for officials to consider new economic data.

Software problems may hinder rollout of online health exchanges. Less than two weeks before the launch of insurance marketplaces created by the federal health overhaul, the government’s software can’t reliably determine how much people need to pay for coverage, the WSJ reports. If not resolved by the Oct. 1 launch date, the problems could affect consumers in 36 states where the federal government is running all or part of the exchanges. Still, the long-term consequences may be limited. People may still be able to sign up offline even if the online exchanges aren’t fully functional at first, several insurers said. And consumers have until mid-December to sign up for policies that start on Jan. 1.

REGULATION:

J.P. Morgan faces a hard-line SEC. The SEC is still investigating a number of J.P. Morgan officials in connection with the “London whale” trading debacle, even as the bank agreed to pay about $920 million in fines over the matter, the WSJ reports. It wasn’t clear who the continuing SEC civil probe is focused on, but Jamie Dimon, the bank’s chairman and chief executive, isn’t expected to be a target. The SEC’s consent order in the matter contained uncommonly strong language, regulatory experts say. It made more than 100 references to “senior management,” not naming Mr. Dimon specifically but defining the term as “individuals who held the listed positions as of May 10, 2012: the JPMorgan Chief Executive Officer, the JPMorgan Chief Financial Officer, the JPMorgan Chief Risk Officer, the JPMorgan Controller, and the JPMorgan General Auditor.”

CFO MOVES:

Ralph Laurenpromoted Chief Financial Officer Christopher Peterson to the additional post of chief administrative officer. He will also be one of four executives in its newly created office of the chairman. Mr. Peterson, who joined the company in September, will now receive a base salary of at least $900,000, a $100,000 increase, according to a regulatory filing. He will also receive an annual equity award valued at $1.8 million, which can be reduced by the board on “good-faith discretion,” along with a one-time equity grant valued at $800,000 that vests over three years. For the year ended in March, Mr. Peterson received total compensation valued at $4.1 million, including a salary of $415,385 for the partial year, and stock, option and cash awards valued at about $3.4 million.

KaloBios Pharmaceuticalssaid Herb Cross will become its next CFO. Mr. Cross was previously CFO of biotech Affymax Inc., from which he was terminated as part of a broad management and board shake-up in June. At Affymax in 2012, he received compensation valued at $874,799, including a $330,000 salary. Mr. Cross replaces Jeffrey Cooper, who is retiring and received compensation valued at $1.5 million last year, including a salary of $134,556 and an option award valued at over $1.3 million.

THE WEEKEND READER

Every Friday we select a handful of in-depth articles we think are worth a bit of your valuable weekend time, either because they peel back the layers on a compelling business story, or somehow make us look at business in a different light.

How Johnnie Walker conquered the world. Booze behemoth Diageo wants to make Johnnie Walker the tipple of choice in emerging markets. The world’s No. 1-selling Scotch whisky has been a crucial part of Diageo’s growth, writes Afshin Molavi in Foreign Policy. Four bottles of Johnnie Walker are consumed every second, with some 120 million bottles sold annually in 200 countries. Five of Johnnie Walker’s top seven global markets are in the emerging world: Brazil, Mexico, Thailand, China and a region the company calls “Global Travel Asia and Middle East.” The Brookings Institution’s Homi Kharas forecasts that the global middle class will number 4.9 billion people by 2030, growing by three billion from today—and they’ll spend $56 trillion a year, up from $21 trillion today. Virtually all that growth will come from emerging economies. That’s a lot of potential Johnnie Walker drinkers. That’s why executives from Starbucks to McDonald’s to Coca-Cola see their future in the global middle class, and that’s why Diageo is pushing into liquor stores from Chile to China, Molavi writes.

Google vs. Death. The cover of Time’s Sept. 30 issue asks, “Can Google Solve Death?” The peanut gallery says “no,” but the accompanying story by Harry McCracken and Lev Grossman on Google’s new health venture, Calico, gives Google CEO Larry Page room to wax on what makes one of the most “increasingly strange companies on the planet” tick. “For me, it was always unsatisfying if you look at companies that get very big, and they’re just doing one thing,” Mr. Page said. “Ideally, if you have more people and more resources, you can do more things, get more things solved.” This kind of philosophy, plus plenty of that aforementioned cash and talent, has driven Google beyond search into wearable computers, driverless cars, online ads and flying wind turbines. The new Google moonshot, helmed by Arthur D. Levinson, former CEO of Genentech, tackles health and aging. Details remain sketchy, but Mr. Page is revealing (about Calico and about Google’s own philosophy on moonshot projects) when he says curing cancer is not ambitious enough. “We think of solving cancer as this huge thing that’ll totally change the world,” Mr. Pages tells Time. “But when you really take a step back and look at it, yeah, there are many, many tragic cases of cancer, and it’s very, very sad, but in the aggregate, it’s not as big an advance as you might think.”

Social media is fueling gang wars in Chicago. That discussion about not posting information on social media you may soon regret takes on an entire different meaning if you live in certain parts of Chicago and other gang-ridden areas. As Wired’s Ben Austen reports, the wrong Tweet or Facebook posting can get you killed. “If we live in an era of openness, no segment of the population is more surprisingly open than 21st-century gang members,” writes Austen. Gang members in Chicago and elsewhere use social media to flash hand signs, show off their guns and insult rivals. “It’s one thing to get cursed out in front of four or five guys, but online the whole neighborhood can see it—the whole city, even,” says Austen. The Chicago police department, which estimates that 80% of school fights originate online, uses those same social-media outlets as a crime-predictive tool, trawling sites frequented by gang members for signs of brewing trouble or “inflammatory comments around specific dates,” such as the anniversary of a homicide. The outlets also provide police a peek at the ever-shifting alliances and beefs between gang cliques. For participants as well as people caught in the crossfire, social media plays another role, as the cyber equivalent of looking tough on the corner—a pose that both protects and endangers. “I ain’t going to lie. On my Facebook page, I’m on there showing my guns off. It’s how you advertise yourself,” one Chicago resident tells Austen.

Deloitte's Financial Reporting Alert discusses certain key accounting and financial reporting considerations related to the current economic conditions in the eurozone and Puerto Rico, including a summary of financial reporting implications that would result from a country's decision to exit the eurozone and an outline of disclosures recommended by the SEC in 2012 about European sovereign debt.